Here are the complaints emerging from financial bloggers:
In a rare move, Goldman is planning to create a "special purpose vehicle" to allow its high-net-worth clients to invest in Facebook ... While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman's proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.
- The SEC Is Blowing It, writes The New Yorker's John Cassidy in an open letter to SEC Chair Mary Schapiro: "Mary, once again the boys and girls at Goldman Sachs appear to be making a mockery of you and your colleagues." He says Zuckerberg is now having his cake and eating it too.
If the deal goes ahead, Facebook will get up to two billion dollars of new capital to invest in its business but will, for the moment, remain a private company... Goldman again appears to be trying to twist the securities laws for the benefit of itself and one of its clients--Facebook... Goldman is, once again, running rings around the regulators.
- It Creates an Unlevel Playing Field, writes Felix Salmon at Reuters: "If multi-billion-dollar companies start trading in a shadowy private market accessible only to Goldman clients and which doesn’t have to comply with stock-exchange rules about reporting prices and the like, then we lose the level playing field and sense of equal opportunity which is afforded by public markets."
- We Didn't Used to Have This Problem, writes Henry Blodget at Business Insider:
In the old days (the 1990s), small companies could sell their stock in the public markets at reasonable cost, just like big companies. This allowed smaller, more speculative companies to raise money, and it gave investors who liked to invest in smaller, more speculative companies more opportunities to consider. ... And how did both sides do? Well, sometimes these speculative bets worked out (Cisco, Amazon, Netscape, Yahoo, et al). Sometimes they didn't ... But both sides understood--or should have understood--the risks involved ...
But then, in an effort to protect investors from fraud (which is actually not the reason most IPOs fail), the government erected huge new barriers to going public, making it prohibitively expensive for most small companies to IPO. So now small, speculative companies generally don't IPO. Instead, they stay private. And/or they do what Facebook just did, which was do a "private IPO" with Goldman Sachs.